Country-by-country reporting is arriving

Last Updated: October 2015


The era of country-by-country reporting is arriving


Richard Murphy explains that new rules may soon come in to play regarding profit-shifting by multinational corporations.

Since July 2013 the Organisation for Economic Co-operation and Development (OECD) has been looking at how multinational companies shift profits to low-tax jurisdictions in order to reduce their tax bill. 

Specifically, it has looked at whether or not current national rules permit the shifting of profits out of the locations where they were generated and into places with lower tax rates and, if the rules do permit this profit-shifting, come up with proposals for how to change this.

The investigation is called the Base Erosion and Profits Shifting (BEPS) process and its outcomes are being released over the next year. The first set of outcomes was released in September 2014 and one of the points it addressed was country-by-country reporting which we have long campaigned to see introduced.

The outcomes propose that governments request three sets of information for each tax jurisdiction in which a company does business. 

These are:

  • A report on revenue, pre-tax profit and income tax (both paid and accrued).
  • A report on the number of employees, capital, retained earnings (net earnings retained to be reinvested in the business or to pay debt) and tangible assets (e.g. offices, land, equipment).
  • A clear indication of which entity within the corporate group does business in that location, including that entity’s business activities.


According to the OECD’s Guidance on Transfer Pricing Documentation and Country-by-Country Reporting, these three sets of information will ensure that corporations “articulate consistent transfer pricing positions”. This means they will no longer be able to conceal transfer pricing deals (where a company sells services to itself) within the company structure. It will help tax administrations to more effectively evaluate and investigate the practices of corporations operating in their jurisdiction.1


Watertight tax rules?

This does not mean we have all we want on country-by-country reporting. The OECD requirement is vague on some issues. For example, they see no need for companies to reconcile revenue, profit and tax reporting to the consolidated financial statements, thereby removing one mechanism for ensuring that a company’s figures add up. 

But equally they are robust on other points.

One example is that every jurisdiction has to be included in the country-by-country reporting template. There is no let out for so-called ‘immaterial places’ (as many tax havens are sometimes claimed to be) which are precisely the places that we want to know about. 

Vitally, sales figures have to be split so that it is clear which sales have been made to third parties and which have been made to other companies within the corporation. The latter is important because these are the sales where transfer pricing abuse takes place, shifting profits from high-tax to low-tax countries.

This sales data, plus data on employee numbers, tax accrued and paid, and estimates of capital employed, now allow any tax authority to prepare a best estimate of where a group of companies really earns its profits as compared to where it declares them. That’s because profit is really earned where sales are made, where people are located and where productive assets are owned. Country-by-country reporting reveals where these places actually are. 


More good news

There is more good news in here. Because profit has to be declared on a country-by-country reporting basis for tax purposes, a full set of country-by-country reporting accounts will have to be prepared by every multinational corporation for every jurisdiction in which it operates. There is no other way to get this data.

And that means something else, which is that no multinational corporation can argue ever again that it does not have this data or that it would be too costly to publish it. Multinational corporations have a duty to account to each and every jurisdiction where they operate for what they do in that place. The data required by BEPS is a great start, although ideally some more detail could be added. But a process has begun and the outcome is, I think, inevitable. The era of country-by-country reporting is arriving.


This and other blogs by Richard Murphy are available at



Corporates in the dock

Amazon, Google and Starbucks in the dock

Richard Murphy examines the recent parliamentary hearing which he considers to be a first in democratic scrutiny of corporate tax affairs.

Find out more

Ethical made easy

Detailed ethical ratings for over 40,000 companies, brands and products, plus Ethical Consumer magazine.

30 day trial subscription - find out more